USD/CAD Price Analysis: Edges down from one-year high of 1.3880, Fed policy in focus

• USD/CAD falls modestly from one-year high at 1.3880 as the US Dollar retreats.
• Janet Yellen said high US bond yields reflect strong confidence in the US economy.
• Investors await BoC Macklem speech and Fed’s monetary policy.

The USD/CAD pair falls gradually from the one-year high of 1.3880 in the European session. The Loonie asset drops as the US Dollar Index (DXY) slips sharply from 106.70 as investors shift focus to the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

The US Dollar Index (DXY) faces selling pressure as investors hope that the Fed is done with hiking interest rates due to higher US Treasury yields. 10-year US bond yields have risen to 4.85% and have tightened financial conditions significantly.

US Treasury Secretary Janet Yellen said last week that high US bond yields reflect strong confidence in the US economy and indicate that interest rates will remain higher for a longer period.

The Canadian Dollar would dance to the tunes of the speech from Bank of Canada (BoC) Governor Tiff Macklem, which is scheduled for Wednesday. BoC Macklem may provide guidance on interest rates and inflation in Canada.

USD/CAD struggles to extend upside above the one-year high around 1.3880. The near-term demand for the Loonie asset remains upbeat as the 20-day Exponential Moving Average (EMA) at 1.3715 is sloping toward north.

The Relative Strength Index (RSI) (14) shifts into the bullish range of 60.00-80.00, which indicates that the bullish momentum has triggered.

A decisive break above October 27 high at 1.3880 would expose the round-level resistance at 1.3900, followed by 13 October 2022 high at 1.3978.

In an alternate scenario, a breakdown below October 24 low around 1.3660 would drag the asset to the round-level support of 1.3600. A further breakdown could expose the asset to October 7 low at 1.3570.

USD/CAD daily chart